Despite the tense confrontation with China on border and rhetoric ‘self-reliance’, India’s dependence on the east Asian nation remains significant. Long way to go before Indian can be considered as the world’s factory.
Imports from China made 14% of the Indian imports in the fiscal year ending March 2020. The number has gone up to 19% this year, showing the increased dependence of the country China. That apart, the economic support of other quad countries(Quadrilateral Security Dialogue) including the US, Japan, and Australia has also increased over the past few years.
Relocation Considerations
Amita Batra, a trade economist at JNU, says that some firms might consider relocating from China. However, it will not be on a large scale. The covid recession has drained companies out of cash. Hence several might reconsider their relocation as diversification is neither easy nor cheap. Even if they decided to relocate, it is unlikely that they will choose India owing to issues in ease of doing business, and labour and land reforms. The disruption in the supply chain caused by the pandemic has encouraged companies to not move their production units far away from China.
India’s Prospects of Becoming the World’s Factory
India’s share of dependence on China is significant. However, Biswajit Dhar, another trade economist at JNU, notes that India is the only country after China that can become a low-cost production centre. Even World Bank in 2017 reported that South Asia has the potential to become the next manufacturing powerhouse if it improves business climate and links to global value chains. However, India’s participation in global production has declined since 2008. Its use of high-value imports to produce export commodities has increased significantly in the past few years.
Eclipse Bangladesh Before Thinking About China
IMF, in World Economic Outlook report, mentioned India’s slipping behind Bangladesh in terms of per capita GDP. India’s GDP per capita in real terms was 1.4 times that of Bangladesh in 2016. However, it is following a downward trend since then. Notably, India’s GDP per capita projections for 2019 stood at USD 2097.78, whereas it was USD 1816.04. But this year, the forecast for India’s GDP per capita in current prices is USD 1876.53, which is USD 11.44 less than that of Bangladesh’s projection.
The gloomy forecast could be partly due to the Covid-19 blow and partly to India’s chosen path to growth. While Bangladesh has been leveraging upon its low-skilled labour force, India has sunk in becoming an economic powerhouse of the service sector. However, the industry fails to create jobs at a commensurate pace, leaving a significant portion of the labour force untapped.
GDP Data Suggests Indian Economy Hit Severely by COVID-19
While China has excellent prospects of rebound, India’s GDP is projected to drop by 10.3% below Bangladesh, Vietnam, China, Nepal, Pakistan, and five other Asian economies. Kaushik Basu, the former Chief Economic Adviser of Union Finance Ministry, warned the Indian government suggesting not avoiding data. Further, he advised to take corrective action and utilize the expertise available in the country.
In all, India first needs to increase manufacturing capacity to provide mass employment and eclipse Bangladesh. Only then it will be able to compete with China to become the next manufacturing powerhouse.